The amount of money and credit now sloshing around inside the global financial system is so exponentially greater than it was just a decade ago that we have truly sailed into unknown waters. Observation of various media sources confirms one key deficiency in our collective ability to accurately assess exactly what the effect of such excess is having on our global economy. Namely, the very small temporal window through which we observe and assess our condition.
I reference, of course, the modern obsession with measuring all activity economic in quarters. Most glaringly, any economist, journalist, writer or financial broadcaster who tries to incorproate a decade-long or more temporal framework for any argument against the current trajectory is immediately perceived as somehow quanit, old-fashioned, and not statistically relevant in the grand scheme of things.
A case in point is Marc Faber’s segment on Bloomberg TV on January 14, 2014, in which he points out that the effect of liquidity fabrication in the form of widespread and rampant quantitative easing has taken the already incendiary issue of income disparity and essentailly poured gasoline on it. He made the case that whereas the Bloomberg anchors who were his interviewers were of the opinion that inflation was negligible, this was becasue their incomes were pegged substantially to the rise in wages and prices, according to Faber. Whereas for lower income earners, the massive inflation that has resulted since oil was $12 a barrel in the nineties has created the condition where the poor often expend gross percentages of their income on energy, food and shelter, while for those in high income brackets whose income keeps pace with and in many cases exceeds the rate of monetary inflation, the price increases in energy over the last twenty years are negligible.
So here’s Marc in his always colourful and vibrant suit drawing a correlation between the poor and the woes mounting for them thanks to the Fed while the Bloomberg anchors politely indulge him, but are clearly incapable of a genuine empathy. Marc comes across as folksy and friendly, but I’m sure his approach makes him easily dismissible by the eminently more fashionable and equally eminently less erudite than Faber.
The point here is that while by Marc’s account, hydrocarbon prices have inflated by roughly 900% since the 1990′s, the Fed and all mainstream financial talking heads proclaim inflation nearly non-existent. Easy to conclude if you only measure it in quarterly increments within a period of a few years.
This is one of the grand distortions of massive global uncoordinated quantitative easing. Participants in the top level economy can comfortably conclude inflation is not a factor in their lifestyle, while the vastly more numerous lower income earners, who have no talking heads to represent them on Bloomberg, are being financially wiped out by this inflation. Their equity is being destroyed. Same goes for senior retirees who have saved diligently their entire lives, only to be rewarded with negative real rates of return on their Treasury investments, impoverishing them.
Meanwhile, among youth, the distortions take the form of horribly amplified tuition costs, rewarded with menial rates of pay for entry level jobs, usually outside of their chosen professions. The exception, of course, is the offspring of the political class, the one percent, and of industrial titans, where nepotism isn’t merely anonymous – its the status quo.
So where is this taking us? What are the secondary and tertiary pressures on our ability to continue to coexist more or less peacefully within the G7 – 20, in the face of growing income disparity?
The risks are apparent in the rise of random violence in America. The growth of prison populations, and the growing disproportional representation of minorities in the prison system. It is evident in the growing civil protest movements by youth in urban centers the world over, itself an expression of a rising discontent with the way things are evolving.
This all points to a growing diminished sense of personal security at the street level, and an increase in predatory property crimes. It points to a future where economic growth is undermined at every turn by an increasingly stratified society, where the rich are categorized as the enemy of the poor.
The recent events in Ferguson, Missouri and the explosion of shootings in the U.S. to the point where single and double homicides don’t even qualify as national news is symptomatic of a collapsing societies.
The end of civilizations throughout history are not visible in quarter-on-quarter balance sheets. Thus, the true condition of the modern world eludes accurate description by modern media.
The next bubble to blow will be the liquidity bubble we are currently still expanding. The inflection point will be where the effect of continued capital fabrication in keeping the quarter on quarter economic growth fable impossible, and where the world’s central banks try to deflate the bubble by having to buy back their fragrant bonds due to a lack of buyers at auction.
Since we’re still only measuring debt in trillions, and quadrillions and septillions have yet to be deployed in the modern economic lexicon, that date may yet be in the future, as reality, for the time being, need not apply.
